Russia’s tax hikes were meant to shore up the federal budget. They may be pushing the economy underground.

Russia’s central bank disputes these figures: according to the regulator’s own data, the share of cashless payments in retail turnover grew by 0.9 percentage points in the first quarter of 2026, reaching a record 88.9 percent. The share of cash withdrawal transactions fell 4 percent in both number and total volume.

Even so, the central bank acknowledges that the volume of cash in the monetary base grew 3.5 percent in April, to 20.2 trillion rubles, and by 14 percent over the year. Alla Bakina, the head of the central bank’s national payment system department, said the regulator’s own figures show no shift toward cash. In her view, demand for cash has grown because people want a reserve on hand in case they run into payment problems.

The trend was sharpest in early May: in the first half of the month alone, 330 billion rubles in cash flowed into the economy through bank branches and ATMs. The central bank attributed the surge to widespread mobile internet outages, which are prompting households and businesses to build up cash reserves for everyday use.

The regulator also tied the March–April rise in cash demand to a possible “adaptation to tax changes”: starting in 2026, card processing services became subject to a 22 percent value-added tax, making cashless payments more expensive for businesses to accept. Card processing fees in Russia average 1 to 3 percent of the transaction total, so for businesses with thin margins — including food services, building materials, and auto parts — those percentage points can eat into a significant share of profit. Accepting cash avoids that fee entirely.

Most likely, yes. And the central bank’s reluctance to acknowledge it may be a sign that part of the Russian economy is migrating into the shadows.

Small businesses and ordinary citizens are especially worried about government plans to tighten oversight of cashless payments between individuals. In March, the government submitted a bill to the State Duma that would require banks to report to the Federal Tax Service account holders suspected of tax evasion. “Money received by individuals free of charge (as gifts) is fully exempt from taxation, and payments to other individuals for paid services are being ‘disguised’ as falling under this exemption,” the bill’s authors wrote in an explanatory note.

The Federal Tax Service clarified that the key trigger for monitoring individual transfers would be exceeding 2.4 million rubles in undeclared annual income — a threshold that could affect 3 percent of the country’s working population. Among those affected, there will be no shortage of entrepreneurs and landlords who would prefer to move some of their transactions off the books. For now, though, the law has not been passed, and the current rise in cash payments likely owes more to Russia’s frequent internet outages and rising taxes.

As a reminder: starting January 1, 2026, the base VAT rate rose from 20 to 22 percent. Authorities are also gradually reducing the revenue threshold that triggers VAT obligations for businesses enrolled in the simplified tax system:

A broader retreat into the informal economy carries costs on multiple fronts. Government coffers come up short on taxes; employees in the shadow sector forfeit access to social protections; and law-abiding companies find themselves undercut by rivals willing to evade the rules.

At the same time, experts warn against overstating the scale of the current problem. According to analysts surveyed by Forbes, the share of cash payments will remain in the 28-to-31-percent range through year’s end. How things develop from there will depend on how businesses and individuals adapt to higher taxes, how aggressively the government tightens oversight of cashless transfers between private individuals, and whether regular mobile internet outages continue.